Learn the act of distinguishing a factory from a trading company today!

Sometimes, when sourcing for or dealing with Chinese suppliers, it may be a bit tactical to place what type of supplier they are. Are they factories, trading companies, or wholesalers? That’s a big question. I know you are dying to know that. Well, most importers are, so relax!

It is not going to be easy to distinguish a factory anymore. Many trading companies and wholesalers keep claiming that they are factories, which only makes things harder. There have been many articles written concerning this issue, but none of them seems to hit the nail on the head.

In this blog post, I will teach you seven straightforward ways to distinguish a factory from a trading company. But before that, I will explain why some of the solutions suggested by others blog doesn’t seem useful. Could you please take a look at that?

Phase One: Some suggested ways that aren’t effective at all

The following are some ways which a few blogs have mentioned about verifying a factory. It hasn’t been useful, but I see it as an important phase for you to understand before learning the real ways. So, learn a thing or two from these:

a. Asking for samples and tracing the address

Hmmm… well, friend, this is popular advice from many blogs. I’ve come across this so many times that I begin to wonder how much could help at all. I even went through some research to see if it could be a step towards victory, but it didn’t turn out well. Believe me; if this should work out, there will be some pitfalls along the road. So it would be better you opt for something else.

Asking for samples and checking the address of where it comes from might work in other countries but not in China. It says that if the supplier’s office address is the same as that registered on the business license, then it’s a factory. It’s not going to apply because some factory’s rent workshops can move out at any time. They usually make use of rented spaces to which they might relocate anytime.

The worse part of this is that they would fail to update the business license; otherwise, tracing it would’ve been an easy task.

b. Checking the registered capital of the suppliers

It was also suggested that you should check the supplier’s registered capital. If the supplier has a large registered capital, it’s a factory, not a trading company. But, I would disprove such a suggestion.

Most of the time, the small and medium scaled factories will have smaller registered capital than the trading companies. So, this doesn’t mean that that method would give you a verified outcome. Loans can be taken to start businesses in China. The company might have a large capital, but it might actually be loaned. So this method should be ousted.

Please disregard those methods and face these ways.

Phase Two: 7 easy ways to verify that your supplier is a factory

1. Inspect the business license

When checking the business license, the most important thing to consider is the Business Scope. This is the easiest way that a supplier cannot impersonate. When you check the license, you should note that a factory’s business scope must and would include some words like manufacture or produce. If it doesn’t, then it’s a trading company. The trading company wouldn’t have such terms in its business scope.  

Spotting these words might be a bit difficult if you don’t understand the Chinese characters. So, you can send it off to a friend who does. Otherwise, employ the help of a professional translator to help you with it.

2. Analyze the Value Added Tax (VAT) invoice

This is the best and most direct way to verify a supplier.  The Chinese government usually offers a drawback for exporting products to support the export. But the thing here is that, if the company wishes to get that drawback, a charge of 17% VAT invoice would be needed, and ONLY THE FACTORIES CAN ISSUE THAT.

Here’s the plan: tell the supplier that you want to apply for a drawback through a partner you have in China. So, request that they give you a 17% VAT invoice. If they hesitate to offer that to you, you should doubt if the company is actually a factory and not a trading company.

But if they agree to your terms, you can then request the invoice and then check the company name. If the name is the same as that on the supplier’s license, then it is most definitely a factory. Okay?!

3. Check the MOQs of the Supplier

Yeah! MOQs tell a lot about the type of supplier you’re involved with. The factory’s MOQ is most likely to be higher than that of the trading companies in most instances. It’s almost inevitable. Therefore, test the supplier to verify what group they belong to. You can ask them to sell to you at lesser MOQs than what is stated. The MOQs of factories are almost impossible to negotiate while trading companies are more flexible.

For instance, you need to purchase some plastic cups. The supplier has stated that its standard MOQ is 1000 pieces. Bending this decision would be very difficult if you’re dealing with a factory.

4. Go through the product catalog.

The catalog of a factory is usually monotonous as they deal in just one product type. If the catalog contains more than expected, then it’s a trading company. Even if it’s different classes of the same products, a factory won’t produce that. That’s the business model of a trading company.

5. Request for the Factory Auditing Reports

If a supplier refuses to send you the factory auditing report that states they have supplied to big companies such as Wal-Mart, they might not be sincere about being a factory.

If you can lay your hands on the auditing report and contain the same company name as the one on the business license, then it’s a factory.

6. Check out for ISO 9001 Certification

Although not all the factories in China have this certification, most of them will be factories, not trading companies.

The trading companies may acquire this, but that means they would need to operate like the factories by dealing in just a product type. Most of them wouldn’t want to settle for such so that you can trace a factory from this.

7. Check the location of the supplier.

In China, most products have a specific location where the manufacturers make them. For example, the remote controls for toy cars are mostly manufactured in Guangdong Province, China.

Research the location where the product you choose to import is usually produced. If the supplier you are dealing with is not within that location, then they will most likely be a trading company and not a factory.

Easy methods, right? I know so. They are direct and straightforward. You don’t need to be stressed out when finding these out. Take a chill pill and do your research.

Final Thoughts

At the end of the verification process, ensure that what you find out is the truth. Don’t ignore any fact you might find out, or you would be at the risk of being scammed. You know that there are lots of scammers and fraudulent activities going on there.

Remember, research and survey are essential when doing business with people you’ve never seen before. It may seem a bit difficult, but don’t let it weigh you down. Get your act together and do a good job making the best decision.

If you have further questions, you can let me know in the section below. Thanks for reading, and do have a satisfactory experience!